Historically many family owned businesses had an easy path to follow with the next generation of the family entering the company with a view to taking over the reins when the time was right. Although this appears to be a straight forward option, careful planning is required to ensure the right commercial and tax structures are in place.
Where there is no obvious succession within the company, proprietors must consider the alternatives much earlier than they may well consider necessary. This will include the potential sale of the company. It will be important to decide whether the sale will be a:
- Management buy out (MBO)
- Trade / third party sale.
The route chosen will depend significantly on whether an able management team already exists or if there is time to build / recruit one. The MBO option should be more straight forward and quicker than a trade sale, unless a potential acquirer has made an approach or is already known to the vendors.
Either sale option requires planning and if there are significant changes to be made to the business to improve its performance, then the greater the time available for these to be undertaken the better.
In essence whether it is simply passing the business to the next generation or selling to new owners, the issue of succession cannot be considered too soon.
Incorporate plans for succession or sale into all of your business plans at every stage of its development.
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